Is a tough financial situation not letting you continue your systematic investment plan (SIP) in mutual funds? Then press a 'pause' button for now, legally, to meet your other unavoidable expenses.
Is it possible? Yes, India's third largest fund house, ICICI Prudential MF, has recently brought an 'SIP Pause' feature to investors on all monthly SIPs. It allows a pause in an existing plan for one to three months. The facility can be availed only once during the tenure of the existing SIP but comes with no costs. Investors would not be penalised by their respective banks during the pause duration. Currently, banks through which payments are made, either by Electronic Clearing Services or post-dated cheques, charge customers Rs 100 for dishonouring the scheduled payment.
Aashish Somaiyaa, senior vice president & head, retail business, says, “Customers opt for SIP cancellation in tough times, either for personal reasons or to meet other emergencies. In such situations, we run the risk of losing clients. With the SIP Pause, our endeavour is to tell them not to stop but to pause (on) their investments for a temporary period.” Once the pause period is over, the SIP restarts automatically.
For a pause, a physical form needs to be filled and given in at the nearest branch of the fund house.
The initiative comes at a time when the MF sector continues to lose its investor base and cancellations of SIPs are rampant. And, persistently high inflation is squeezing customers' budgets.
Dhruva Chatterji, senior research analyst at Morningstar India, says, “It’s a flexible feature but shows the pressure on the industry to retain customers.” Over the past three years, the fund industry has lost a little over four million retail folios in the equity segment alone.
“Such a feature brings comfort to investors, essentially conveying that instead of stopping investment, pause for some time,” says Ajit Menon, executive vice president, DSP BlackRock MF. For investors’ convenience, the fund house has added a feature which allows investors to redeem through a mobile text message.
‘SIP Pause’ is a new feature for Indian fund houses and barring ICICI MF, none has yet introduced it. However, industry officials say they offer this flexibility to investors. "These are all internal processes and we do try to retain our investors when they approach us after payment failures. Who does not want to keep the client base intact?,” asks the CEO of a mid-sized fund house. According to him, industry does so without officially declaring it. In ICICI’s case, they have made it known.
Currently, if investors fail to honour their payment commitment for three months in a row, the folio is considered cancelled. “But, we cannot keep investors’ wealth. If they want to restart, we do retain our customers,” explains a sales head of another fund house. However, during these non-payment months, banks continue to slap a penalty on the investors.